On the Determinants of Economic Openness in Nigeria

Abstract

Aims: Economic openness has been identified as a tool that provides countries with an avenue to explore advances on technology, creation of exchanges through the reallocation of resources especially from less efficient to efficient producer, and economic growth. This study examined the short-run and long-run impact of economic determinants such as foreign direct investment, unemployment rate and percentage of the urban population on economic openness in Nigeria.  Place and Duration of Study: The study employed a secondary source of data collection obtained from the Central Bank of Nigeria (CBN), Statistical Bulletin and National Bureau of Statistics (NBS) Annual Publication. The data comprises of variables such as economic openness which is proxy by trade openness, foreign direct investment, unemployment rate and percentage of the urban population from 2006 - 2019. Methodology: The impacts of the economic determinants considered in this study were examined using the Autoregressive Distributed Lag (ARDL) co-integration technique and the error correction parameterization of the ARDL model. The R-3.6.3 programming package was used to perform the analysis. Results: The outcome of the study revealed that the appropriate ARDL model for estimating economic openness was the ARDL (1,1,1,1) selected based on the Schwarz Bayesian Criterion. Also, the error correction model identified the sizable speed of adjustment by 30.0% of disequilibrium correction yearly for reaching the long-run equilibrium steady-state position. It was found that the lag of the Unemployment Rate (UNER) and the percentage of the urban population have a significant short-term effect on economic openness. Also, the distribution of economic openness was found to be stable over the observed period. Also, it was found that the relationship amongst the variables was independent except for the relationship between the percentage of the Urban Population (PUP) and Foreign Direct Investment (FDI) which was found to be is unidirectional. Conclusion: The outcome of this study suggested the urgent need for policymakers to implement policies such as the "ease of doing business"  of the federal government of Nigeria which is anticipated to make foreign direct investment more attractive and in turn is expected to boost economic growth and thereby impact positively on urbanization in Nigeria.